Recent Posts

With the market currently fixated on Chinese rare earth
export quotas, perhaps the time is right for
countries hosting rare earth element (REE) reserves to rethink
legislation and production timelines to take advantage of a
market on the rise.

An already tense US-China relationship took a new turn last week, as the US, EU, and Japan moved in
on the World Trade
Organization (WTO) to challenge China’s restrictive export
policies for REEs.

With some referring to the move as arguably the most notable form
of market legislation conflict in a generation, the potential
opportunities that many arise must also be considered.

Investigation not a foregone conclusion

According to Daniel McGroarty, principal of the American Resources
Policy Network, China could very well win the case
in that it has supposedly been “couching its export policies in
language consistent with recognized WTO environmental
exceptions.”

McGroarty, who has also served in senior positions in
the White House and Department of Defense, added that China
could potentially ignore the WTO’s ruling. If this scenario were
to play out, the market would almost certainly be looking to
source supply from elsewhere, opening up an exciting realm of
opportunity for junior REE producers and explorers.

This scenario seems more realistic when the financials of some of
China’s main REE mining entities are taken into account. The
country’s largest producer of rare earth, Inner Mongolia Baotou
Steel Rare-Earth Hi-Tech Co. (SHA:600111), announced last week that its net profit
last year quadrupled from that of 2010 to $552 million. The main
reason given for the rise was the surge in rare earth prices.

In 2011, in the midst of China’s crackdown on illegal REE mines,
prices for the commodity skyrocketed by as much as ten times before experiencing a modest
correction towards the end of the year.

Opportunities exist

Out of adversity comes opportunity, and with China currently
producing 95 percent of REEs globally and controlling about half of all global reserves, some
analysts are suggesting that there is a wealth of opportunity for
companies willing to put in the hard yards to bring a mine to
production level.

From a reserves aspect, countries such as the US and Australia hold notable deposits, yet are often
held back on progressing mines to production by legislative red
tape. It presently takes an average of up to ten years to obtain all the
necessary permits to develop a mine in the US, while in Australia
the process is swifter at two years.

Some have also argued that there is an ironic catch-22 scenario
in that while populations in areas such as the US are demanding
affordable services – including renewable energy, which is highly
dependent on REEs – these same populations are continuing to
lobby against the fast-tracking of mining permits and the
legislative changes needed to make these a reality.

A change in mindset

Without some form of structural change, or at the very least a
moderate ramp up in production from countries other than China,
the Asian giant will continue to exert its dominance in REE
exports. It is this dominance that is allowing China to maintain
such high levels of trading leverage, and prompting many to ask:
is an incident such as the WTO investigation exactly the prompt
to rethink its industrial strategies that the market needs?

Soaring rare earth prices based on one country’s export abilities
are forcing companies around the world to look into diversifying
supply sources, while international efforts to find new supplies
also seem to be gathering momentum.

According to recent reports, an increased wariness about China’s
monopoly on rare earth has reinvigorated financial support for new rare
earth mines, including efforts by US entrepreneurs seeking to
obtain financing to reopen Molycorp’s (NYSE:MCP) Mountain Pass mine, and attempts in Japan to
fund new mining ventures in Australia, Kazakhstan, Mongolia, and
Vietnam.

The first signs of legislative debate were seen recently when
Lisa Murkowski, the Senator
of Alaska, announced that the answer to once again
creating an independent market is to increase US development of rare earth mines
and refineries. She has introduced legislation that she claims allows the designation of rare earth
sites as “critical to US strategic interest.”

Murkowski commented,“[t]he president wants to sue the Chinese for
something that we could – and should – be producing for
ourselves,” before adding, “[a]ll he has to do is look north to
Alaska, which has already identified roughly 70 rare earth
elements sites.”

The move to look beyond China as a means of supply has not been
limited to the US. Other countries are also beginning to step up
policies in retaliation of what they consider to be a monopolized
market.

Japan, the world’s largest importer of rare earth, announced last month that it will provide five
billion yen ($65 million) in subsidies for projects that reduce
the need for REEs as it attempts to cut its reliance on imports.

According to a statement from the Ministry of
Economy, Trade and Industry, funds will be made available to
support projects that reduce the consumption of magnetic products
that use dysprosium and neodymium, improve recycling, and develop
new technologies.

Securities Disclosure: I, Adam Currie, hold no direct
investment interest in any company mentioned in this
article.